General knowledge of the benefits and obligations that the Construction Contracts Act 2002 has brought to the business of building has improved in recent years, but members still ask how to go about ensuring that they get paid even when they’ve taken all the right steps under the Act.
When a valid payment claim is ignored, ie, no payment schedule is issued, or it has been but the scheduled amount hasn’t been paid, the right to payment is provided by the Act. But how do you actually get the money?
(Of course a valid payment claim needs to comply with the Act’s minimum requirements for information, including the additional information for residential occupiers. If in doubt, check out the member’s section of the RMBF web site for a sample payment claim and a step-by-step guide.)
Before resorting to court or adjudication, there are means of persuading a debtor client that the money should be paid.
The Registered Master Builders Residential Building Contract RBC-1 gives the RMB the option of stopping work for non-payment, or placing a caveat and a mortgage on the title to the land (after observing the required notice and time provisions).
These powers are the equivalent to the CCA’s powers of stop work and placing a charge on the land in a commercial construction contract. But the Act specifically states they don’t apply as of right to residential contracts.
While it is true that you cannot “contract out” of the Act, ie, you cannot put any clause into a contract that has the effect of negating or denying the rights that the Act provides, there’s nothing to stop a contract from containing provisions that the Act does not provide.
You should act quickly when payment is outstanding — the longer you wait the harder it will be and the less likelihood there is that the client can or will actually pay.
If the client hasn’t raised an issue with the job, then it’s their ability to pay that is likely to be the problem. Do not delay. If you are using RBC-1, ensure that you comply with the notice provisions, and have the caveat registered on the title and request the executed mortgage as soon as possible.
In addition, if the client has a Master Build Guarantee, you can draw their attention to the fact that failure to pay is a breach of their obligations under the Guarantee, and they risk it being cancelled.
You should also alert the debtor client to the fact that if you are forced to take action they will be liable not only for the outstanding amount, but your actual and reasonable costs in getting judgment.
Hopefully, this encouragement will result in the outstanding amount being paid. However, if that doesn’t happen the Act provides a few fast-track mechanisms for turning a “mere debt” into an enforceable one.
Recovering a debt through the court system or adjudication follows two stages. The first stage includes obtaining a judgment (getting an order from the court that the debt is owed) and, second, enforcing that judgment (or getting the court to enforce the judgment if the debtor refuses to pay).
Getting the judgment can be by way of adjudication, summary judgment (or statutory demand if the debtor is a company). While the procedures are different they all basically involve filing the requisite evidence of the debt along with an explanatory statement, the opportunity for the debtor to respond, and the issuing of a decision or determination by the court or adjudicator.
However, if an adjudicator’s determination is not complied with, ie, they still don’t pay, you have more work to do before the debt is enforceable. You’ll have to have the determination entered as a judgment in the District or High Court.
Once judgment has been entered against the debtor, he or she should arrange payment of the debt. Where the debtor either refuses to make payment or where payment appears impossible, you will have to enforce payment of the debt. Yes, you guessed it, back to court.
Methods of enforcement
The most common methods of enforcement include:
• Order for Examination: An Order for Examination requires the debtor to appear before the court registrar to be examined as to their financial situation. If the registrar determines that the debtor is able to pay the debt, the registrar will make an order for payment.
• Attachment Order: An Attachment Order directs the debtor’s employer to make deductions from the debtor’s wages or salary, or from benefits, to be paid directly to the creditor.
• Distress Warrant: A Distress Warrant provides for a collections officer from the District Court to seize goods from the debtor to the value of the debt. These goods are held for approximately five days and then sold. Proceeds are then paid to the creditor minus the expenses incurred in the seizure and sale of the goods.
The recovery of money owing can be a slow and painful process, and costly.
While the Act has provided greater clarity in respect of right and ability to recover the costs of debt recovery, the basic court processes remain unchanged.
The best strategy is to try to ensure that you don’t become a creditor in the first place. Act quickly and firmly, and strictly in compliance with the Act and your contract, when money is unpaid.